Latest Developments in the Real Estate Law- India

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March 06, 2019

One sector which has witnessed phenomenal growth in the past two decades is the Real Estate Sector. The impact of Real Estate Law and Policies has gained prominence in the wake of huge investments made by individuals as well as corporate entities in this area. Apartments and infrastructure to realize an individual’s dream of home is mushrooming in every noon and corner of India and this evolution in the Real Estate Sector compelled the Legislature to formulate law which would govern the real estate sector and protect rights and interests of homebuyers.

Noticing the irregularities being witnessed in the sector, particularly home buyers suffering on account of one-sided development agreements and developers, the Centre passed the Real Estate (Regulation and Development) Act, 2016. The Act has been formulated with the object to bring about accountability and transparency in the real estate sector and for speedy redressal of disputes between home buyers and developers.

The Indian Judiciary has also been proactively protecting the interests of home buyers and has delivered verdicts which are worth mentioning. Some of the recent case laws pertaining to Real Estate Law in India are enumerated below:

Display Sanction Plan/ Layout Plans at the Site of Developer- Supreme Court

Case name: Ferani Hotels Pvt. Ltd. V. The State Information Commissioner Greater Mumbai & Ors.

In this recent case, the Two-Judge Bench of the Supreme Court elaborated on an essential aspect of Development Agreements and emphasized on the need to display sanction plan/layout plans at the site of the developer, apart from any other manner provided by the Regulations made by the Authority.

Bench’s Verdict

  • The Bench noted that the duties of promoters and developers are more elaborate, as under Section 11(1) of the RERA the promoter has to create his web page on the website of the Authority and enter all details of the proposed project as provided under sub-section (2) of section 4, in all the fields as provided, for public viewing.
  • That the promoter, in terms of sub- section (3) of Section 11 of the RERA is required to make available to the allottee information about sanctioned plans, layout plans along with specifications, approved by the competent authority, by display at the site or such other place as may be specified by the Regulations made by the Authority. The Court emphasized on the fact that the whole object of RERA is clearly to bring greater transparency.
  • The Supreme Court also opined that the fate of purchase of land development and investments is a matter of public knowledge and debate. Thus, any judicial pronouncement must squarely weigh in favour of the fullest disclosure, in this behalf.
  • The Bench also stated that keeping in mind the provisions of RERA and their objective, the developer should mandatorily display at the site the sanction plan. The provision of sub-section (3) of Section 11 of the RERA require the sanction plan/layout plans along with specifications, approved by the competent authority, to be displayed at the site or such other places, as may be specified by the Regulations made by the Authority.
  • The Supreme Court has also advised that in view of rampant violations of the provisions it is advisable to issue directions for display of such sanction plan/layout plans at the site, apart from any other manner provided by the Regulations made by the Authority. This aspect should be given appropriate publicity as part of enforcement of RERA.

The entire case can be accessed here.

Real Estate Law- Flat Owners’ Consent Required for Alteration in Sanctioned Layout

Case name: Shri. Vitthal Laxman Patil v. Kores (India) Ltd. Real Estate Division Mumbai & Ors.

In this recent case, the High Court of Bombay has been held that promoter is obliged to make full and true disclosure of the development potentiality of the plot which is the subject matter of the agreement and if any departure is to be made in the scheme so disclosed, consent of flat takers must be obtained.

The seminal issue that fell for consideration before the High Court of Bombay in the case was whether after making disclosure to flat purchasers of a sanctioned layout plan showing a certain number of buildings and open and amenity spaces was it permissible to a promoter to construct an additional building without seeking consent from the flat purchasers?

Bench’s Verdict

The High Court of Bombay in the case made reference to the relevant provisions of the Maharashtra Ownership Flats Act (MOFA) i.e. Section 7 which prohibits the promoter, after the plans and specifications are disclosed, from making alterations or additions without the consent of persons who have agreed to take flats from him. However, the said provision was amended in 1986 and Section 7A was incorporated, according to which the question of taking prior consent of flat takers arises only when an addition to the structure of the building is to be carried out and not when additional structures (i.e. structures independent of the building concerned) are to be erected.

The High Court in the aforesaid context opined that Sections 3 and 4 of MOFA read with clauses 3 and 4 of Form V of Maharashtra Ownership Flats Rules, 1964- which deal with the obligations of the promoter, firstly, to disclose all particulars of the building or project involving more than one buildings and then to construct in accordance with such particulars. Thus, these require the promoter to make a full disclosure of the proposed building and its amenities or the project of buildings and their amenities, and then to comply with such disclosure whilst constructing the building.

While elaborating on the aforesaid, the High Court also made reference to Supreme Court’s verdict in the case of Jayantilal Investments vs. Madhuvihar Co.op. Housing Society, wherein the Apex Court in context of Sections 7 and 7A held that reading the two groups of provisions, it was clear that the obligation of the promoter under MOFA to make true and full disclosure to the flat takers remained unfettered even after the amendment of MOFA by Maharashtra Amendment Act 36 of 1986.

Thus, in view of the aforesaid obiter dicta and law prevailing on the subject, the High Court of Bombay in the case ruled that the promoter is not only obliged statutorily to give to the purchasers the particulars of the land, building, amenities, facilities, etc., he is also obliged to make full and true disclosure of the development potentiality of the plot which is the subject matter of the agreement and if any departure is to be made in the scheme so disclosed, consent of flat takers must be obtained.

The entire case can be accessed here.

Bombay High Court Upholds Constitutional Validity of RERA

Case name:  Neelkamal Realtors Suburban Pvt. Ltd. & anr. v. Union of India

In a recent landmark case, the constitutional validity of RERA was challenged by the builders association. The Petitioners comprising of builders had challenged the legality and constitutional validity of certain provisions of RERA as being violative of Articles 14, 19(1)(g), 20 and 300-A of the Constitution of India. The Builders in the case had assailed some of the intrinsic provisions of RERA like, regulating the transactions of ongoing projects and compelling promoters of such projects to get the project registered under RERA from the date of notification of the provisions of Sections 3 to 19 of the Act.

The Bench comprising of Justices Naresh Patil and Rajesh Ketkar while upholding the constitutional validity of RERA, held that RERA has adequate mechanism, which balances the rights and obligations of the promoter, real estate agent and the allottee.

Amendment of Insolvency and Bankruptcy Code, 2016 and it’s Impact on Real Estate

In 2018, the President gave his assent to the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2018. The Amendment to the Code comes as a huge relief for homebuyers as it envisages that an allottee under a Real Estate Project will be considered as a financial creditor.

Previously Section 6 of the Code stated that when a corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process…

Thus, under the Code, an aggrieved home buyer to claim his funds could not file an application for corporate insolvency process against a bankrupt real estate developer.

The Amendment by placing the home buyers under the umbrella of secured creditors entrusts them with the right to claim their money back and initiate the process of insolvency under the Code.

The Bill amends Section 7 of the Act which provides for Initiation of corporate insolvency resolution process by financial creditors. The amended provision stipulates that in the provision for the words “other financial creditors”, the words “other financial creditors or any other person on behalf of the financial creditor as may be notified by the Central Government” shall be substituted.

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